UPDATE: CME: Will Continue To Work With Illinois Lawmakers On Taxes

CME Group Inc. (CME) hasn't thrown in the towel on negotiations with Illinois state lawmakers over a deal to slash the exchange group's state tax bill and keep it from leaving the state, a senior CME executive said Wednesday.

A package of legislation that aimed to reduce CME's in-state tax burden by about half by easing the levy on electronic transactions hit a roadblock late Tuesday in the state capital of Springfield, when the Illinois House of Representatives resoundingly voted down the proposal. The state Senate had supported the bill.

"We will continue to work there and continue to look at our other options," Jamie Parisi, CME's chief financial officer, said to investors at an event Wednesday. "Unfortunately, we were not able to get something passed in this recent session that would've been a benefit for CME going forward."

Parisi reiterated that CME, its exchanges based in Chicago for 163 years, is capable of operating from other states due to the increasingly electronic nature of its markets. Executives have said that its physical trading floors would remain in Chicago, but other operations would likely move.

Illinois House members were divided Tuesday on the amount of tax relief granted to low-to-middle income workers, which was to accompany tax breaks given to the large companies.

A plan passed by the Illinois Senate and rejected by the House would have taxed CME and markets run by CBOE Holdings Inc. (CBOE) on 27.54% of their electronic trades, down from current 100%, though the reduction would not have taken effect until July 1 of next year.

CME's Parisi also defended his company's supervision of defunct broker-dealer MF Global Holdings Ltd. (MFGLQ), which continues to exhibit a shortfall in customer money now estimated at anywhere from $600 million to $1.2 billion, one month after its collapse. CME was MF Global's chief regulator at the exchange level and performed an audit on the firm days before its Oct. 31 bankruptcy.

"We've done the absolute right job here," Parisi said, noting that such situations always involved "pointing fingers." CME earlier this month reported that MF Global may have transferred money out of customers' accounts in a manner designed to avoid detection by regulators.

"You can't be policing every second of every day," Parisi said Wednesday. "It's the responsibility of the clearing firm and the clearing firm's officers to ensure that those funds are held sacrosanct."

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

(Howard Packowitz contributed to this article.)

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